Tax Dollars Received in One Hand and Paid Out with the Other
It has gotten to the point that whenever the government is giving something back to the Canadian tax payer that one should maybe read the fine print that comes with it. Whenever there are steps taken to put a few more bucks back into the pockets of the tax payer it seems like there is always a catch, but of course when the good news about the tax break is being broadcast this part of the deal is never mentioned.
Let’s look at a classic example.
Recently the government released the retroactive payments for the universal tax credit. It was with great excitement that many tax payers anxiously awaited for the mail to arrive, which for many included a nice check from the government. A rarity indeed but one that was well received, but perhaps a little naively.
The increase for many was from $100 to $160 for every youngster under the age of six in Canada, and a payment of $60 per month for each child from the age of six to seventeen. Great news! Now for the bad news.
For each lower income earner in the household this money received is going to be taxed. So yes, you received this Christmas In July money as it has been dubbed, but you may want to call it payout to Scrooge next April when you have to pay the tax on it. That is unless your income is so low that you don’t have to pay income taxes.
For the government we may want to dub this tax as Christmas in April. It is being estimated that the government will glean about $140 million in collected taxes from this credit for the 2014-15 year. Then in 2015-16 it will probably receive about $565 million which equates to about 11.4% of what they paid out in the benefits.
The lesson to be learned here is that really any tax break no matter how little is welcomed. On the other hand let’s be realistic with what is really going to end up in the pocket of the taxpayers. It is fine for the government to pat themselves on the back, but these praises should be based on what the true end outcome of the potential credit is. Not taken at face value.
Make no mistake that if you really want to put the time and effort into learning what potential tax breaks are available to you then it can really have a significant impact on your tax situation. The problem is the tax system is so complex the average person simply cannot decipher what is a tax break and what is not. Or whether they are even eligible for it.
This often means for those that want to know for sure they are potentially going to get the incentives they qualify for, are turning to experts like quality accountants to assist them with them. Many find that the small amount they pay for these types of services is significantly offset with the benefits they receive from their allowable tax breaks.